The furore surrounding the payday loans industry never seems to subside. Everyone, it seems, has an opinion on the activities of payday lenders like but very few seem to offer much in the way of a viable alternative. The Church of England spoke out just recently about its intention to tackle the market head-on, before it was discovered, to their considerable embarrassment, that the Church had actually helped fund the start up of one of the industry’s biggest players, Wonga.
While no doubt well-intentioned, a great deal of the criticism of the industry would appear to fall within the category of knee-jerk reactions, or of simply jumping on a well established bandwagon. That was why it was so interesting to come across a decent, well-researched article on payday loans from a nationally recognised leader in economic research, namely the Adam Smith Institute. Rather than quote the full report verbatim, you can access it here
As you will see it makes for interesting reading.
The main criticism of payday lenders like Alphaloans (http://www.alphaloans.co.uk) is in relation to their interest charges. It would appear reading the article that this criticism is unfounded. That is not to say that some of these companies other practices are not above criticism, but to focus on interest rates, to the exclusion of all other factors, appears to be inappropriate.
The real challenge is to establish a viable alternative. Notwithstanding the green shoots of economic recover banks and other high street lenders such as building societies have considerably toughened up their lending criteria, meaning that for many access to funding for a variety of purposes remains a real problem, leaving payday lenders a quick and convenient option. Perhaps they are simply too convenient.
Credit Unions seem to be the flavour of the month these days. They have effectively been endorsed by The Church of England and there are plans underway to expand substantially the network of credit unions throughout the country. This, however, will take time. In the meantime, what are hard-pressed folk supposed to do? As the Adam Smith Institute points out, if they are denied access to traditional funding, the alterentives appear to be pretty stark: choose a payday lender or take your chances with the local loan shark. Not a very attractive prospective, I am sure you will agree.